With a steep rise in population, which was always vulnerable to food volatility, high energy and food prices distort the supplies to many countries in South Asia. Europeans even amplify this distress for Asian countries by resorting to their traditional energy sources and outcompeting Asian consumers with higher purchasing power.
By Mubeen Waheed
South Asia with 4.5 billion inhabitants is the worlds most populous region. Though, with current global economic fallout their inhabitants are highly affected.
South Asia’s population has grown by almost a billion to around 4.7 billion people in the past five years, making it the fastest-growing region on Earth. The rapid rise in global food and energy prices induced political and economic distress and has had enormous strategic repercussions for the two biggest countries in the region India, and Pakistan, but also for the rest of South Asia. It is crucial to handle the energy crisis first. While oil prices hover around 90 US-Dollar per barrel after a price rally up to 120 US-Dollar in the months before, developing nations like India and Pakistan, with enormous energy demands, are particularly vulnerable to price volatility.
History of crude oil prices
Average annual Opec price of crude oil from 1960 to 2022 threatens to supply security of these countries. Especially those, who are especially vulnerable and spend a big share of their household budget on transport, energy for heating, cooling and cooking are affected by rising prices.
Nonetheless, the root of Pakistan’s food issue lies more profound in the system itself. An ongoing problem in Pakistan is a food shortage because of low agricultural productivity. Much of Pakistan’s main staples, like wheat, rice, barley or Sorghum are coming from India, China, and Germany. Together with India, the region is the largest importer of seed in the world. Global disruptions after the rebound from COVID-19-lockdowns have led to greater inflation and commodity prices due to rising energy costs.
Different levels of food insecurity within Pakistan
Share of people living in food insecurity in different provinces of Pakistan. Especially the Baluchistan, neighbouring Afghanistan, which is arid climate is affected. Punjab, the most populous province Punjab is least affected. (Source: Abbasi et al., 2021)
The availability of cheap, nutritious food is an issue in many nations in the region. South Asia is home to five of the twelve nations in Asia with the highest rates of malnutrition. Local restrictions on exports aimed at preserving food supply may add to inflationary pressures worldwide; as a consequence of the limits, South Asian countries may see greater imported inflation, pushing up food prices elsewhere. Free float of inputs, such as fertilizers, seeds or fuel for tractors would allocate them, where they can be used most efficiently and increase global agricultural output. Open markets could reduce food insecurity and ensure that people in developing nations have access to affordable food. Instead of current export restrictions, South Asian countries should collaborate to keep agricultural trade open and accessible. Open markets could reduce food insecurity and ensure that people in developing nations have access to affordable food.
Europe’s energy hunger starves South Asian countries
Because of the ongoing energy crisis and the breakdown of Russian supplies, European have resorted to coal and LNG producers in Southeast Asia. Due to the European Union’s ban on Russian coal, which went into force in August and Moscow’s decision to cut off gas supplies to some European nations this month, European purchasers have been scurrying to get supplies from Indonesia, the world’s biggest supplier of thermal coal.
Rising fuel costs due to the crisis between Ukraine and Russia have made it difficult for Pakistan to ensure the reliable functioning of its power plants. Companies dealing in liquefied natural gas (LNG) have breached contracts with Pakistan to access the lucrative European markets. Several anticipated deliveries of long-term LNG suppliers over the last several months were cancelled, significantly reducing supply and posing problems for Pakistan. Currently, Pakistan is compelled to acquire LNG, which is relatively expensive compared to 2020 and 2021 prices. Pakistan entered the global LNG market not long ago, but it has since become a significant importer. The main reasons for the country’s decision to include LNG in its energy mix are the depletion of its indigenous gas supplies and the move toward cleaner and cheaper electricity production. Since they rely on gas for over a quarter of the supply. Also hydropower was exposed to destruction and mayhem due to the worst floods in the region caused by a record monsoon and glacial melt in the mountainous north.
Especially transport and power production consume Pakistans energy resources, while the industrial sector, mainly the textile sector, plays a minor role as consumer. (Source: Mudassar et al., 2022)
Though, gas only consisted of a quarter of energy production in 2021, rising gas prices became especially fatal in combination with flooding in 2022, that distorted waterborne electricity production. (source: Statista, 2021)
Political instability in Pakistan has worsened the issue. Government, single political parties and other interest groups continue to thwart business actions, kinship and nepotism hinders hiring new employees and leads to service cuts to delinquent consumers. Meanwhile, the power companies have denied any misconduct and laid the blame squarely at the feet of the administration.
Due to a lack of coordination, no cohesive energy strategy that may help Pakistan’s faltering economy and energy sector is being implemented. Furthermore, the circular debt is a startling 2.5 trillion Pakistani rupees (Rs), a 10 percent increase from the previous fiscal year. Experts predict that by 2025, it will have risen to 4 trillion Pakistani rupees (11 million US-dollars).
Reportedly, Sui Southern Gas Company Ltd (SSGCL) and Sui Northern Gas Pipelines Ltd. (SNGPL) owe Rs. 1.5 trillion (6.5 million US-dollars) to the Oil & Gas Development Company Ltd. (OGDCL) and Pakistan Petroleum Ltd. (PPL)—the backbone of Pakistan’s oil and gas exploration and production. This inexpensive homegrown energy source costs less than half as much compared to imported LNG, which Pakistan is increasingly reliant on. OGDCL and PPL’s revenue is hence stuck in a debt cycle, preventing them from expanding into other markets and exploration of new fields, even though, they would benefit from doing so. After years of diminishing oil and gas reserves, the country’s lack of new investment in exploratory efforts is worrisome and ominous.
Issues caused by the energy crisis in Pakistan
There have been widespread macroeconomic repercussions from the ongoing global energy crisis which followed the epidemic. Energy prices have significantly impacted inflation, slowing progress toward achieving affordable access to energy and contributing to a sharp increase in extreme poverty in the most vulnerable countries and communities. This is especially true in emerging markets and developing economies, where the share of energy and food in household budgets is relatively large. The crisis is already destabilising South Asia, with severe power outages affecting countries like Pakistan and Sri Lanka. Demand is growing, while power generation remains quite constant. This leads to a growing deficit and harms households as well as production.
As with other sectors, the industrial one has been hit hard by the current energy crisis. It has hindered production in a variety of large and small sectors. Because of the ongoing power shortage, utilities cut off natural gas and electricity to factories. Increasing inflation, a falling Pakistani rupee, and dwindling foreign currency reserves have all contributed to a dire economic crisis in the South Asian nation.
The textile business is especially vulnerable. Government data shows that this month’s heatwave has boosted energy use in the residential sector, leading to a shortfall of about 7,000 MW, or around 20 percent of Pakistan’s total generating capacity, on several days.
Pakistan’s vital textile industry, which accounts for 60 percent of the country’s exports and ships goods as diverse as denim and bed linen to markets in the US and Europe, has been hit hard by the power outage. The textile industry is in crisis, says Qasim Malik, vice president of the Sialkot Chamber of Commerce. Competitors from Bangladesh, Vietnam, India, and Thailand are major threats to Pakistan’s textile sector in international markets. The textile sector is unable to meet the challenge because of high utility costs, high wages, and a lack of investment in the nation.
Can renewables bring relief to South Asia?
Like China and Japan, Pakistan likewise relies on imported fossil fuels to power its electrical grid; specifically. In light of this, the issue becomes what can be done to alleviate Pakistan’s energy crisis. Is there anything Pakistan can do to ensure its electricity supply? There is a renewable energy revolution happening across the globe, but notably in Europe. Capacity building takes time, though. By competing with Europe, South Asia once again is faced with the problem that they are buying up the necessary equipment, such as solar panels, with their superior purchasing power, as they are already doing in the gas markets.
While electricity demand is constantly rising, production until 2025 is not considered to rise. In 2025 projections show, that demand might could outnumber production almost three times. (source: Imran, 2020)
By 2030, alternative and renewable energy will mostly replace traditional energy production techniques in Pakistan. Pakistan has a total installed power production capacity of 39.772 MW, with 63 percent coming from thermal (fossil fuels), 25 from hydro, 5.4 from renewable (wind, solar, and biomass), and 6.5 from nuclear, as stated in the National Electric Power Regulatory Authority’s (NEPRA) 2021 annual report. Given the present situation, renewable energy resources may be essential in mitigating the gap depicted above. Recent changes to the Renewable Energy Policy 2019 were made by the Ministry of Energy in line with the present administration’s preference for green power. The updated renewable energy strategy states that by 2030, 60 percent of Pakistan’s energy would come from renewable sources such as hydro, reducing the country’s reliance on foreign fuel imports. More dams and reservoirs also lift the potential of agriculture due to a more stable water supply as well as mitigating the risks of fatal flooding, as experienced in 2022.
Therefore, in light of the current rapid shifts in global energy patterns, Pakistan has a great deal of leeway to find a workable solution to its energy dilemma. Here are some suggestions on how Pakistan might take concrete steps toward embracing renewable energy.
